Chinese Land Sales Faltering, will Pinch Local Governments

Local governments (with the exception of two experimental property taxes in Chongqing and Shanghai) rely on land sales to fund, well, pretty much all fixed asset investment. They are restricted from borrowing money, but have done so anyway, using special financing vehicles, Enron style. Now they must make payments on those vehicles as well as generate enough income to continue. And their main source of revenue is fading fast. Aside from accelerating an expected property tax rollout slated for 2012/13, things are going to get ugly, both for critical local government spending and also the banks that backed their earlier creative financing.

FEATURE - Chinese cities fret as land sales fall

"The land market is cooling down so quickly -- it's as if all the property developers vanished overnight," said an official at the department that handles government land sales for Changsha, a central Chinese city of 7 million.

On Tuesday, two days after Beijing pledged to "unswervingly" maintain property curbs, a major auction for 12 plots in the southern city of Guangzhou was abruptly cancelled, without explanation, just three hours before opening.